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E&O Insurance protects your agency while safeguarding your clients. PIA of Kentucky has chosen to represent Utica National as our E&O carrier. And all PIA of Kentucky members receive a 10% discount! These articles provide expert tips and advice from the E&O professionals at Utica to help you save money and avoid problems.
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Although errors and omissions (E&O) claims resulting from floods typically rise and fall with weather-related disasters, risk mitigation needs to be at the top of one’s mind when offering new or renewal property coverage to reduce exposure. Use these five approaches to help reduce E&O exposure from Flood Liability.

1.Understand. The agent’s understanding of flood insurance and the representations made to the client need to be explained clearly and accurately to avoid an E&O claim.

2. Explain. A flood policy through the National Flood Insurance Program (NFIP) requires a separate application and premium for each location.

3. Options. Since there is an exclusion for floods under a basic property policy, the agent should always provide clients with the possibility of purchasing flood coverage.

4.Document. The proposal formats used by the agency should be consistent and should provide an explanation to assist the prospective client in understanding flood exclusions and available coverages through programs such as the NFIP.

5. Signature. If the client declines coverage(s), sign-off on the proposal should be secured.

Understanding flood coverage and exclusions and effectively communicating and documenting with clients are crucial.

The material contained in this article is for informational purposes only and is not for purposes of providing legal advice.You should contact your attorney to obtain advice with respect to any particular issue or problem.

The agency proposal has played a key role in many errors and omissions (E&O) claims. If the proposal is clear about the proposed coverage and includes definitions and claim examples, it can be valuable for educating the client. If it also includes the necessary disclaimers, the proposal could tip the scales heavily in the agency’s favor in an E&O claim.

However, without this information, the proposal can hurt, if not destroy, the agent’s chance of prevailing in an E&O matter. The following is an actual E&O claim.

This E&O claim was asserted against the agency for providing inaccurate information about coverage when a dwelling fire policy was procured for the client’s rental property. The producer detailed policy coverages for a Dwelling Property 3 – Special Form (DP-3) in the agency proposal. Unfortunately, the agent only requested a proposal for a Dwelling Property 1 – Basic Form (DP-1) from the carrier. The client purchased the coverage, believing that he was securing broader coverage. As is the typical scenario, the client retained all documentation provided from the producer. The underlying claim involved an upstairs toilet waterline leak, which caused water damage to the dwelling’s second and first floors. The misstatement on the proposal of the coverages clearly put liability on the agency. The E&O carrier paid the claim, with offsets taken for the underlying deductible and premium difference.

How could this issue have been avoided?

There are several ways this could have been avoided. One way is to make sure the proposal matches what the carrier proposed. In the scenario above, it is possible that the agency asked the carrier for a quote for a DP-3 but the carrier only provided the DP-1 coverage. Carriers make mistakes, too. Agencies should have a process to compare the carrier quote against the application. There might have been something in the risk that precluded the carrier from offering a DP-3, or maybe the application only asked for a DP-1 quote when the intention was to secure broader coverage.

Another method is to have the agency proposal reviewed by at least another set of eyes, with one set of eyes belonging to the producer. In the claim above, there is a good chance that further review would have identified the error.

Another way is to use the carrier proposal. The advantage of this approach is that if there is a misstatement of coverages or a mistake on the carrier proposal, the carrier would probably bear liability for the error. If the agency is going to use the carrier proposal, it is suggested that a wrap-around document or disclaimer be included. Typically, carrier proposals do not contain the key disclaimers. A disclaimer similar to the following should be added.

Information contained in this proposal is intended to provide you with a brief overview of the coverages provided for reference purposes only. It is not intended to provide you with all policy exclusions, limitations and conditions. The precise coverage afforded is subject to the terms, conditions, and exclusions, of the policies issued.

Accuracy

Based on your agency’s current procedures, could this type of incident happen to you?

In the event of an E&O matter, the agency proposal is an admissible document that both lawyers can access. Since the legal standard in virtually all states will hold the agent responsible for what he or she says and what is put in writing, it is vital that the proposal be accurate.

The material contained in this article is for informational purposes only and is not for purposes of providing legal advice.You should contact your attorney to obtain advice with respect to any particular issue or problem.

Today, probably more than ever, insurance agencies are conducting some degree of auditing. Agency management is keenly aware of the need to verify that the firm’s procedures are being followed consistently. In the errors and omissions (E&O) world, “consistency” is a fundamental word.

However, there are still many agencies that don’t believe they have the resources to dedicate to this important process. The best suggestion to those agencies is to at least start the process. You do not want to find out at the time of an E&O claim that your staff was “doing their own thing.”

Key steps to begin auditing

»Have established procedures for processing new and renewal business. If this is not something that your agency currently has in place, work with your staff to identify at least five key processes. This will provide the foundation to build on.

»Determine who will conduct the auditing. The options are many, ranging from outsourcing, to a dedicated staff member, to a “peer-to-peer” approach. The latter might be the best approach to start with, where employees audit the work of their fellow employees.

» Identify a realistic number of files to audit. For many agencies, the goal is 10% of the policy count. If this is not doable, pick a number, such as 10 files per quarter, per employee. Auditing at least quarterly is suggested.

»Determine the exact audit questions with the potential responses being “yes,” “no,” or “n/a.” Consider the following:

-A new business exposure analysis checklist was completed.
-The accepted proposal template was used.
-There was confirmation to the client of coverages they rejected.
-A binder was issued within 24 hours of the binding of coverage.
-Upon receipt of the policy, it was reviewed and errors were identified.
-The policy was delivered in accordance with the agency’s expectations.

»As the auditing process is ready to be introduced and implemented, meet with the staff to advise them of thepurpose.The goal is to get their buy-in. Through a “softer” approach, the staff will realize that auditing is not only good, but also necessary. By identifying the issues in the files that did not get a passing grade, the agency will be able to develop the appropriate solutions. This could involve the need for further training on the expected way to handle a task. It could also involve tasks being performed. For example, the documentation for a task, such as an exposure analysis checklist, is not being placed in the proper spot in the agency system or in the document management system. It may also identify an employee who does not agree with the specific agency procedure.

»As the audit results are tabulated, hold a meeting involving the employee, the staff member who did the audits, and management. If appropriate, an action plan should be developed to address areas in need of correction. Through this approach, the agency will be able to determine progress as future quarterly audits are completed.

»Celebrate successes. The goal of auditing is not to be punitive although, unfortunately that may occur at some point. The goal is to improve toward a greater degree of consistency.

Tremendous benefits

Strive to create good auditing habits. These habits will eventually become the norm in your agency. Don’t fear auditing. Some agencies become overwhelmed in the development of auditing and try to do it perfectly from the beginning. Even if your agency starts slowly, at least it has started. The benefits will be tremendous and the process can be refined over time.

The material contained in this article is for informational purposes only and is not for purposes of providing legal advice.You should contact your attorney to obtain advice with respect to any particular issue or problem.